In today’s economy it can be tempting for HOA boards to under fund their reserve in an effort to save money. This is a disturbing trend in our industry because it can often leave the HOAs in a compromised position. With underfunded reserves, they have no choice but to scale down or defer important repairs and maintenance, eventually devaluing the entire development.
Read More: What is a Reserve Study?
Unfortunately, property values aren’t the only thing negatively affected by underfunded reserves. The perceived value of an otherwise financially stable association can be compromised as well. When a non-avoidable cost arises and the association doesn’t have money in the reserve, the board will levy special assessments to cover the cost. Savvy homeowners looking to buy will see an underfunded reserve as liability because they know that the HOA is likely to special assess as it goes along. Further more, lenders are factoring in Reserve Disclosures when considering to fund homebuyers looking to buy into your community.
Read More: Reserve Studies: FICO score for HOAs
Ultimately the choice to underfund reserves is short sided. It will end up costing you more in the future and could devalue both the property and the association itself.
At Barrera and Company, we complete thousands of Reserve Studies each year which have helped our clients comply with the law and prepare for upcoming expenditures.
Interested in getting a Reserve Study for your community? Click here to get a proposal!